Further deregulation needed: ADB

Further deregulation needed: ADB

SINGAPORE (Reuter): Indonesia's economy is likely to stabilize in the next two years but the longer-term prospects hinge on the progress of market deregulation needed to sharpen competitiveness and fuel future growth, the Asian Development Bank (ADB) said yesterday.

"The pace of real sector deregulation has clearly flagged since the early 1990s; it needs to regain momentum to contribute to Indonesia's competitiveness and future growth," the ADB said in its latest annual outlook.

The bank put Indonesia's gross domestic product (GDP) growth at 7.1 percent in both 1995 and 1996 against 7.4 percent in 1994 (Indonesia's Central Bureau of Statistics places this figure at 7.34 percent).

The bank said agricultural output is forecast to improve substantially from its poor performance in the recent past with growth of 4.3 percent in both 1995 and 1996.

Rice production is expected to benefit from changes in the price incentive structure and from the introduction of new rice varieties that are more resistant to drought, it said.

But overall industrial growth over the next two years is forecast to be lower than the high rate achieved in 1994, and manufacturing growth is projected to be somewhat lower than in 1994 on the back of more competitive conditions.

The ADB said Indonesia's industrial growth was 7.3 percent in 1993 and 10.7 percent in 1994, and forecast rates of 7.2 percent in 1995 and 7.0 percent in 1996.

"Manufacturing also showed continued vigor with a growth rate of 11 percent (in 1994), higher than in 1993," the bank said.

Inflation

The ADB also noted some less satisfactory developments. These include persistent inflation and growing off-budget public expenditure which undermine fiscal discipline and transparency in the allocation of public resources.

Indonesia's inflation rate was 9.2 percent in 1994, the bank said. It projected inflation of 7.8 percent in 1995 and 7.6 percent in 1996.

The rising price of cement and scarcity of supply underlined the need for further improvements in domestic competitive policies affecting incentives, the bank said.

It said although rapid progress had been made in the wide- ranging banking and financial sectors, trade and industrial policy reforms have not been commensurate.

"In fact, some recent increases in trade protection, exemplified by the imposition of export taxes on crude and semi- processed palm oil, have served to retard the process of economic restructuring," the bank said.

Although the government lowered tariff rates and surcharges on some 800 import items in 1994, a host of other products are still subject to either non-tariff barriers or exceptionally high tariff rates or export taxes, the ADB said.

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